Macro Foundations · intermediate
What moves on the Money Multiplier diagram
Less cash held outside banks means fewer leaks from the redeposit cycle, raising the money multipliermultiplierThe amount total output changes per dollar of initial spending change, powered by respending: 1/(1−MPC) in the simplest case. and broad money for a given base.
Cash kept outside banks is a leak: it never gets re-lent.
Payments go digital and people stop holding wads of cash.
More of every dollar stays inside the banking system and keeps multiplying.
The multipliermultiplierThe amount total output changes per dollar of initial spending change, powered by respending: 1/(1−MPC) in the simplest case. line rotates up: the same base now supports more broad money. Payment technology quietly changes monetary arithmetic.
Examiners ask this as: cashless, tap to pay, digital payments, card payments, less cash held.
Other scenarios on Money Multiplier